Contractors Center Point

PNC Economic Division Reports Home Building Recovery Continues As Starts Increase in June

Housing starts rose 6.9 percent from May to June, to 760,000 at a seasonally-adjusted annualized rate. Single-family starts were up 4.7 percent over the month, while multifamily (apartment) starts were up 12.8 percent. There were small upward revisions to starts in April and May.

Permits fell 3.7 percent in June, to 755,000 at an annual rate. There was a 0.6 percent gain in single-family permits and a 10.9 percent decline in multifamily permits; multifamily permits are much more volatile and rose 18.5 percent in May. There was a small upward revision to May permits. Both starts and permits are up from their lows of around 500,000 in early 2009, although they remain far below their long-run averages. The homebuilding recovery started on the apartment side as higher rents spurred construction, but has since moved to the single-family market as excess supply has been worked off in many parts of the country.

 

 

 

 

 

 

 

 

 

 

 

 

 

Stronger sales and construction are due to a combination of continued growth in the number of households, pent-up demand, very low prices and mortgage rates that have resulted in record-high affordability, an improving labor market, and gradually easing access to credit. The National association of Homebuilders housing market index, which is based on current traffic and expected future sales for single-family builders, jumped in July and is at its highest level in more than five years, although it is still far below pre-recession levels. The NAHB index indicates that single-family construction will continue to improve in the near term.

 

 

 

 

 

 

 

 

 

 

 

 

Residential construction will add to economic growth this year and next. PNC’s forecast is for single-family housing starts of around 500,000 this year and 540,000 next year, up from 430,000 in 2011. Multifamily starts will be around 240,000 in 2012 and 270,000 in 2013, compared to fewer than 180,000 last year. The improvement in homebuilding will support employment gains in construction.

Between better homebuilding and stable house prices, the housing market will contribute to economic growth in 2012 for the first time since 2007. However, residential construction now directly accounts for only 2.5 percent of real GDP, down from nearly 7 percent at its peak in 2006-2007. The contribution will be larger next year as homebuilding continues to increase, foreclosures work their way off the market, and prices see more consistent gains. With the dearth of new homes built over the past four years, significant pent-up demand, very high affordability, a falling unemployment rate and a gradual relaxation of mortgage lending standards, the housing market will help drive the moderate U.S. economic expansion over the next two years.

To learn more about economic matters impacting the construction industry or to contact an accounting professional servicing this market, please contact the construction professionals of McKonly and Asbury, LLP.

Weak Market Conditions Persist According to Architecture Billings Index

The Architecture Billings Index (ABI) saw more poor conditions last month, indicating a drop in design activity at U.S. architecture firms, and suggesting upcoming weakness in spending on nonresidential construction projects. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the June ABI score was 45.9, nearly identical to the mark of 45.8 in May. This score reflects a decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.4, up slightly from mark of 54.0 the previous month.

“The downturn in design activity that began in April and accelerated in May has continued into June, likely extending the weak market conditions we’ve seen in nonresidential building activity ,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “While not all firms are experiencing negative conditions, a large share is still coping with a sluggish and erratic marketplace.”

Key June ABI highlights:

• • Regional averages:
           Midwest (48.0), South (47.6), Northeast (46.4), West (44.3)
    
  • Sector index
           breakdown: multi-family residential (49.0), commercial / industrial
           (46.9), institutional (46.0), mixed practice (45.9)
    
  • Project inquiries
           index: 54.4

The regional and sector categories are calculated as a 3-month moving average, whereas the index and inquiries are monthly numbers.

About the AIA Architecture Billings Index

The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research Group, is a leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended as compared to the prior month, and the results are then compiled into
the ABI. These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are
formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the White Paper Architecture Billings as a eading Indicator of Construction: Analysis of the Relationship Between a Billings Index and Construction Spending on the AIA web site.

To learn more about news impacting the construction industry or to talk to professionals serving this marekt, please contact the construction professionals of McKonly and Asbury, LLP.

Equipment Lease Finance Industry Confidence Drops 10 Points in June 2012

The Equipment Leasing & Finance Foundation (the Foundation) released the June 2012 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) today. Overall, confidence in the equipment finance market is 48.5, down from the May index of 59.2, reflecting growing concern over the European debt crisis, U.S. unemployment, and regulatory and political uncertainty.    
  
When asked to assess their business conditions over the next four months:

• 8.1% of executives responding said they believe business conditions will improve over the next four months, down from 17.1% in May; 64.9% of respondents believe business conditions will remain the same over the next four months, down from 77.1% in May; 27% believe business conditions will worsen, up from 5.7% the previous month
• 8.1% of survey respondents believe demand for leases and loans to fund capital expenditures
  (capex) will increase over the next four months, a decrease from 20% in May; 64.9% believe demand will remain the same during the same four-month time period, down from 77.1% the previous month; 27% believe demand will decline, up from 2.9% in May
• 10.8% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 25.7% in May; 86.5% of survey respondents indicate they expect the same access to capital to fund business, an increase from 74.3% the previous month; 2.7% survey respondents expect less access to capital, up from no one who expected less access in May
• 24.3% of executives reported they expect to hire more employees over the next four months, down from 31.4% in May; 64.9% expect no change in headcount over the next four months, an increase from 62.9% last month; while 10.8% expect fewer employees, up from 5.7% in May
• 78.4% of the leadership evaluates the current U.S. economy as "fair," down from
  88.6% last month; 21.6% rate it as "poor," up from 11.4% in May
• 8.1% of survey respondents believe that U.S. economic conditions will get better over the next
  six months, down from 22.9% in May; 64.9% of survey respondents indicate they believe the U.S. economy will stay the same over the next six months, down from 65.7% in May; 27% elieve economic conditions in the U.S. will worsen over the next six months, an increase from 11.4% who believed so last month
• 29.7% of respondents indicated they believe their company will increase spending on business development activities during the next six months, down from 37.1% in May; 70.3% believe there will be no change in business development spending, up from 62.9% last month; and no one believes there will be a decrease in spending, unchanged from last month

Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $628 billion equipment finance sector.

To learn more about this survey or other economic information impacting the construction ommunity, please contact the construction professionals of McKonly and Asbury, LLP.

Associated Builders and Contractors Doubts Construction Industry Recovery In 2013; Cites ‘Lack Of Confidence’

During a national online news conference June 19, ABC Chief Economist Anirban Basu stated the nation’s construction industry may not recover next year.

“I’m not buying in to the proposition that the nation’s construction industry will recover in 2013,” said Basu. “What we have right now is an utter lack of confidence in the economy, and confidence represents a centrally important requirement for construction spending growth.

According to Basu, while there is capital and profitability in the broader economy and money sitting in the banks, many decision-makers have adopted a wait-and-see attitude until the sea of uncertainty related to the future path of federal spending, tax rates, the financial chaos in Europe and our own 2012 elections recedes.

“No sector of the economy during the recession has lost more jobs than the construction industry, with nearly five million jobs lost since December 2007,” said Basu. “And what we now see is that job growth is decelerating. The trend is not positive for construction employment in the months ahead.

“However, it’s not all bad news,” Basu said. “Certain construction segments likely will experience growth in the coming months, including healthcare and power generation.”

Basu was joined by National Association of Home Builders’ Chief Economist David Crowe and American Institute of Architects’ Chief Economist Kermit Baker.

To watch a recorded version of the 2012 Mid-Year Construction Forecast Online News Conference, go to the newsroom at www.abc.org.